The UAE’s tepid economic performance over the last 24 months has had a major impact on the real estate sector with rents continuing to slide against the backdrop of oversupply and uncertainty over future recovery and growth prospects, says the report from consultants CB Richard Ellis.
‘The performance of individual Emirates continues to fluctuate widely with Sharjah and Ajman currently feeling the brunt of Dubai’s overhang of space. An ongoing situation of depressed demand and increasing supply is further compounded by the outflow of occupiers to Dubai encouraged by a growing availability of quality, yet affordable accommodation and fears of a prolonged period of infrastructure problems,’ it
It also points out that a ‘flight to quality’ has been evident across the market since the beginning of 2009 and this trend continued throughout 2010. ‘Competitive lease rates coupled with landlord incentives continue to drive tenant migration to newer, larger and superior specification buildings. Older buildings with lower specifications are witnessing a sustained slump in lease and occupancy rates as a result of the pressure from new supply,’ it adds.
Average apartment lease rates across the Northern Emirates have dropped by 17% since the second half of 2009. The highest drop over the past year has been for one bedroom apartments which have declined by 20% followed by two bedroom units by 16% and three bedroom apartments by 14%.
Current asking rates for a three bedroom villa range between AED100,000 to AED120,000, while four bedroom villas range between AED140,000 and AED150,000. Office lease rates in the Northern Emirates range from AED260 per square meter in Umm Al Quwain to AED860 per square per annum in Sharjah.
The largest rental declines in the Northern Emirates occurred in Ajman which has seen lease rates dip by around 25%. This was followed by Umm Al Quwain and Sharjah with falls of 21% and 20% respectively. Average lease rates in the Northern Emirates at the end of the second half of 2010 ranged between AED17,000 to AED24,000 for a one bedroom apartment, AED24,000 to AED31,000 for a two bedroom apartment and AED29,000 to AED43,000 for a three bedroom apartment. The lowest rates were identified the Emirate of Umm Al Quwain.
The sheer volume of residential stock in the development pipeline across the Northern Emirates poses a major problem for the market that will ultimately lead to further rental declines, the report also says.
‘Our forecast for the next 12 months is for a further 10 to 15% drop in residential rental rates. The biggest declines are expected in Ajman and Umm Al Quwain due to their proximity to Dubai and Sharjah which both have huge volumes of available supply at declining rental rates,’ it adds.
‘In consideration of the large number of units close to completion, lease rates are expected to drop during 2011, whilst the evolution of landlord incentives is also widely anticipated,’ it concludes.
